As a rule, the low inflation (2-3%) is preferable to moderately high (8-10%), or high inflation (15-20% and more). This however does not apply to the present situation in the Bulgarian economy. Bulgaria is expected to join the EU in 2007 with GDP per capita 27,2% of the EU-15 level in 2003, with labour productivity 30,2% and average price level 33%.

Prior to and immediately after accession there will be an acceleration of the price convergence. This is an objective process, which nobody can prevent from happening. It has been confirmed by Greece, which acceded in 1981 with average price level of 40% and by Portugal and Spain, which acceded in 1986 with average price levels of 50-55%. Their present price levels are close to those of the EU-15: Portugal – 74%, Greece – 80% and Spain – 82%.

The analysis of the price behaviour of the less developed countries proves that after accession their prices increase 2,0-2,5-3,0 times faster than the EU prices. This process fades with the convergence of the price levels. On the other hand, with the accession of advanced countries with comparable levels of GDP per capita, productivity, income and prices to those of the EU there is no such outstripping increase, as there is no catching up. Such was the case with the accession of Austria, Finland and Sweden in 1995.

The lesson is that the present policy of Bulgaria to stick to low inflation under Currency Board arrangement is not appropriate in the context of the forthcoming accession. Bulgaria will be the acceding country in 2007 with the lowest ever GDP per capita, productivity, income and prices with respect to EU levels. For the sake of gradual convergence of these indicators Bulgaria must strive to faster growth of production, productivity, income and prices, compared to EU level. Thus after 15-20 years relative convergence of prices with EU would be achieved. The policy of low inflation now would produce uncontrolled price increases of 13-15 % and more per annum under conditions of Eurozone membership, which will be difficult to tolerate.

The low inflation now is not something which Bulgarian authorities should be proud of. It would be better to adopt a policy of 8-10% for the next 10 years, and 4-5% for the decade thereafter. This price convergence process is inevitable. The authorities can not and should not try to stop it!